Sharing gifts is a part of Diwali celebrations. From goods and gold to sweets and snacks, we like to share all types of gifts with our loved ones.

But what about cash? Is it wise to share cash as a gift on Diwali? And, are there any tax implications on sharing cash as a gift. As you celebrate the festival of lights, FE Online talked to Dr Suresh Surana, Founder, RSM India, to find answers of these queries. Take a look:

How much cash can an Individual receive as gift on Diwali without drawing taxmen’s ire?

As per the provisions of Section 56(2)(x) of the Income Tax Act, 1961 (‘IT Act’), if aggregate sum of money received by an individual exceeds Rs. 50,000 without any consideration during a particular Financial Year, then such sum shall be chargeable to tax under the head ‘Income from Other Sources’.

In simple terms, if an individual receives cash either from one or multiple persons, and the aggregate value of such receipt exceeds Rs. 50,000 during a particular financial year, such amount will be taxed at the slab rates applicable to that person.

Since the threshold limit is applicable for a particular year, a specific amount that an Individual can receive as Diwali gift without drawing taxmen’s ire cannot be specifically stated because one need to evaluate the gifts received during other festivals as well.

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However, to avoid tax, the prima facie condition is that, the aggregate cash received as gifts should not exceed Rs. 50,000 in a financial year.

It is also pertinent to note that, if an employee receives any Gift in Cash from his/her employer, then the whole amount received as gift (even if it does not exceed Rs. 50,000) shall be taxable under the head ‘Income from Salary’.

Is it wise to give cash as a gift on Diwali from the income tax point of view? If not, then what are the other options?

It depends on individual choices and cash gift even if opted to receive, if it is within the overall limit as specified in Question 1 above, would not have any tax implications.

Is cash gift from father taxable?

The IT Act explicitly states that the provisions of Section 56(2)(x) will not be applicable if an individual receives gifts from any of his/her relatives. Further, the term “relatives” in the case of an individual is defined as:

(A) spouse of the individual;
(B) brother or sister of the individual;
(C) brother or sister of the spouse of the individual;
(D) brother or sister of either of the parents of the individual;
(E) any lineal ascendant or descendant of the individual;
(F) any lineal ascendant or descendant of the spouse of the individual;
(G) spouse of the person referred to in items (B) to (F);

The Father of an individual is the lineal ascendant. Thus, cash gift received by an individual from his/her father is fully exempt even if it exceeds Rs. 50,000 in a year.

Is cash gift from friends taxable?

Yes. The IT Act does not explicitly exempts cash gifts received by an individual from friends as it does in the case of relatives. Thus, the same will be chargeable to tax if the aggregate receipt in a FY exceeds Rs. 50,000.

Who has to pay tax on gifts – the person who receives the gift or the person who gives the gift?

According to the provisions of Section 56(2)(x) of the IT Act, the person who receives the gift is liable to pay tax on it.

Source: https://www.financialexpress.com/money/income-tax/income-tax-on-cash-as-happy-diwali-2021-gift-how-much-cash-to-share-as-gift-without-tax-implications/2362533/